Product pricing can greatly influence brand perception, sales, and profitability.
However, multiple tangents should be considered before choosing the right eCommerce pricing strategy.
While discounts appeal to shoppers, sudden price drops can cut into your targeted revenue and profit margins.
This guide explores the most effective eCommerce pricing strategies, their pros and cons, and actionable steps to help you select the right approach for sustainable growth.
What is a Pricing Strategy?
A pricing strategy is a structured approach to setting product prices, balancing consumer demand, competitive dynamics, and business objectives. In eCommerce, this becomes even more critical as customers can easily compare prices and shop for the best deals.
Mastering pricing involves more than choosing a single approach; it requires understanding consumer behavior, monitoring competitors, and adjusting dynamically for maximum profitability.
5 Proven Pricing Strategies for eCommerce
1. Competitive pricing
The competitive pricing strategy is a straightforward tactic that considers consumer behavior. It involves setting prices based on competitors' prices to attract price-conscious consumers. This way, consumers can simply compare similar brands or products and choose one. Although low-risk and easy, this can reduce your products’ perceived value.
For example, Staples’ “Price Match Guarantee” ensures customers don’t leave for a competitor offering a lower price.
Pros:
Simple and low-risk to implement
Builds transparency and trust
Cons
Reduces profit margins.
Can devalue your products.
Unsuitable for premium or niche brands.
2. Value-based pricing
The value-based pricing strategy lets you price products based on their perceived value to the customer rather than production costs or competitor rates.
This strategy is a price analyst’s favorite as it is best for growing businesses that want to raise their profit margins while following fair pricing standards and quantifying product value.
For example, A cybersecurity software priced according to the potential cost savings it provides customers.
Pros
Results in higher profit margins compared to competitive pricing
Ideal for scaling businesses with a loyal following
Cons
Setting accurate and competitive prices can be difficult
Needs extensive market and audience research
Could damage the brand's reputation if the prices are too high
3. Price skimming
Price skimming is when you launch a product at a much higher price and eventually lower it in case more competitors emerge or to appeal to price-sensitive customers.
This way, you drive great returns when the competition is low and continue to remain competitive in the long run.
Price skimming is a popular software pricing strategy, especially if the product is tapping into a new domain and targeting early adopters.
Another example is the video gaming industry which creates novelty products and can use price skimming to maximize profits early on before competition erupts.
Pros
Maximizes profits during early product lifecycle stages
Enhances product positioning as premium.
Cons
Unsustainable for the long term
High initial pricing can alienate price-sensitive buyers.
Customer loss when competitors emerge with lower prices
4. Penetration pricing
Unlike price skimming, penetration pricing is when you introduce or launch your products at lower price points and eventually raise them. This is a popular strategy by businesses that are penetrating an already competitive marketplace in hopes of standing out.
The idea is to earn short-term profits and build a long-term market presence through brand awareness.
Xiaomi, for instance, is a great example of penetration pricing, where the smartphone giant entered the already crowded market with low prices and slowly began gaining customer trust.
Pros
Attracts new customers.
Builds a strong presence in competitive markets
Cons
Can lead to early losses.
Low pricing may devalue the product.
5. Bundle pricing
Bundle pricing is one of the common and smartest eCommerce strategies. It’s when brands sell multiple products together as a bundle to increase AOV and move excess inventory.
The bundle is usually priced at a lower price point than the products’ individual prices combined.
For example, most eCommerce brands may let you “build your own bundle” and apply a discount on the final price.
Pros
Boosts sales and AOV.
Moves excess inventory.
Cons
May erode profit margins.
Not every customer may value bundled items equally.
Can devalue individual products
How to choose the right pricing strategy
1. Define your objectives
Define the objectives or outcomes that you envision your brand to achieve in the long run.
For instance:
Do you want to increase your profit margins?
Should you target to boost the customers’ AOV?
Do you want to clear out your inventory?
Should building brand awareness be your first priority before increasing sales?
Once you narrow down your pricing choices based on your objectives, you can plan to implement one or more pricing strategies and set your product prices.
2. Understand consumer behavior
If you don’t already have a buyer persona, create one to better understand your potential customers.
Explore their traits, demographics, buying habits, and income brackets to choose a pricing strategy that’s tailored for them and your business outcomes.
3. Competitive analysis
Monitor your top competitors’ pricing strategies on an ongoing basis. Research their value proposition and market positioning so you’re not just competing on product pricing alone.
For example, is there something in their value proposition that affects how they price their products? Do they have a loyal customer base? Are they using any clever messaging to position their product? Etc.
Finally, look at the competitors’ product prices. And not just current prices, but also monitor historical data and how it changed with market demand to better understand their pricing strategy.
4. Real-time adjustments and price optimization
You can use analytics platforms for real-time price monitoring and adjustments of prices to stay competitive.
For instance, some platforms will auto-adjust your product prices every time your competitor’s price changes.
Price optimization, based on an in-depth analysis of market conditions, customer wants, or competitor pricing is crucial to achieving your target profit margins.
That’s when product analytics platform like Graas help you increase profitability by understanding product performance over time and suggesting product mix and price optimizations for the best returns.
5. Tailored pricing strategies
You may not want to stick to one pricing strategy but rather use a customized one based on different customer groups or segments and their purchasing patterns and wants.
For example, some customer groups prefer exclusivity and premium pricing for certain products while others may be more cost-conscious. In this case, a dynamic pricing technique where pricing is adjusted in real-time based on product demand or value-based pricing based on customer loyalty may result in higher returns.
Examples of pricing strategies
Two real eCommerce brands that drove more sales with smart pricing strategies:
1. Thrive Market uses competitive pricing to price match
Thrive Market is an organic food store with an obvious high competition.
The brand allows a “Price match” guarantee on its website where customers can submit a price match request if they find an identical product at a lower price. This strategy ensures the customer doesn’t shop from elsewhere for the best price.
2. NatureBox uses bundle pricing to boost repeat customers
NatureBox is a popular health snack eCommerce brand that sold subscription bundles where customers had the flexibility to create their own snack bundle.
This is a great strategy to get repeat customers and increase the AOV.
Wrapping up
The right pricing strategy should be a combination of fair pricing, competitive analytics, and customer preferences for sustainable returns.
Product / SKU Analytics is the most reliable way to fast-forward growth.
Graas’ product intelligence solution helps you understand your customers better and uncovers product insights for smarter decision making.
For example, its ABC Analysis shows you product-wise revenue break up so you know what SKUs drive the most sales. You can also find out the ideal price at which a particular product’s sale spiked.
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